It’s hard to believe that when the first commercial cell phone was brought to the market in the early 1980s, anyone could have predicted the impact mobility would have on the world.

“In many ways, mobility has the potential to have as great of an impact as the invention of the wheel,” said Seema Ghanekar, head of mobility for L&T Infotech. “The wheel enabled people to move between places efficiently. Mobility enables people to be virtually present anywhere and at any time. Both innovations altered the way we work and live. As far as mobility in the corporate enterprise is concerned, mobility enhances the fidelity and expediency of informed decision making. ”

Devices have rapidly evolved – becoming smaller, more powerful and more affordable. Network speeds continue to increase. But, one of the biggest drivers in today’s mobility is more emotional in nature; namely, the importance consumers now attach to their devices.

“The amazing thing about smartphones is that they are always with you. Everyday, I leave home with my keys, my wallet and my phone. If I forget my wallet, I may not go back for it. But, if I forget my smartphone, I’m definitely going to turn the car around,” said Steve Roth, senior director and mobile product manager for ADP.

Companies are now ramping up to take full advantage of this mobile phenomenon. After spending the previous year identifying how to manage a multitude of employee-owned devices, setting policies and keeping company data secure in a virtual world, corporations are now exploring how to engage mobility to do everything from reducing costs to increasing sales.

“Enterprise-level mobility adoption is changing in a fundamental way,” said Dr. Satya Ramaswamy, vice president and global head of the Mobility Solutions Unit for Tata Consultancy Services. “In 2011, many enterprises were in trial mode when it came to applying mobility to their businesses – both internally and on the consumer-facing side. Today, these companies are engaging consultants to look at their complete value chain and come up with comprehensive roadmaps for transforming entire business process flows.”

Let’s take a look at some of the dominant trends.

It’s Not Just for Email Anymore

Email in the office to email everywhere was the baby step in what’s become a full-scale sprint in the mobile enterprise evolution. Company app stores are becoming the norm, chocked full of downloadable applications nestled securely behind the firewall.

“We’re seeing a lot of interest in applications that push analytic and customer data directly to the mobile sales force,” explained Darren McGrath, global product marketing manager for Mobility, HP Enterprise Services. “For example, while a salesperson waits for an appointment, he or she can quickly access that prospect’s history on a mobile device – from what was discussed at the last meeting to the name of the prospect’s kids. Anytime you can push meaningful information to your employees, in short, digestible data bites, you improve productivity and performance.“

Companies with remote field workers, like plumbers, electricians or appliance repair firms, are turning to mobility for workforce optimization.

“In these types of businesses, it’s essential to get the right people with the right equipment to each customer call,” Roth said. “There’s a huge ROI if personnel can solve the customer problem on the first visit. Return trips waste time, gasoline and cut into profits.”

Through applications that take advantage of a mobile device’s built-in GPS features, dispatch can track employee location, push out daily schedules and instantly change next-call information to accommodate client emergencies or cancellations. When the call is completed, the employee can finalize the invoice, email a receipt, and move on to the next destination – all without the usual paper shuffle.

But, today’s enterprise applications aren’t limited to road warriors alone. Outsourcers are working with organizations on something for nearly every type of employee, from the executive suite on.

“We’ve seen a number of requests for mobile enterprise applications, like Leave, Travel and Order approvals, which connect to enterprise back ends, like PeopleSoft and SAP. Manufacturers have a number of tasks that are right for mobile, including inventory and materials management and production tracking,” Ghanekar said. “We’ve also developed some interesting applications for a leading U.S.-based client in the entertainment industry that enable collaborative reviews of videos and documents through mobile devices.”

A New Kind of Customer Engagement

But, what about the company-consumer connection? How can this new, vibrant channel be used to market products and services effectively? The answer is not mass marketing, but finding ways to personalize messaging and add value to the customer experience.

“If implemented with care, the smartphone channel can become a powerful and indispensable connection between a company and its customers,” Ramaswamy said. “For example, we helped a major paint manufacturer in the U.S. develop a mobile app that lets consumers take pictures of items in colors they like. The application analyzes the colors, lists the closest-matching paint names, and directs the consumer to the nearest retailer with those paint colors in stock.”

Consider the traditional discount programs, where a specific retailer offers discounts to the employees of specific large companies. Every week, these employees receive an email detailing the discounts, and a list of participating retailers. Now, when you apply a little mobile innovation, the dynamics change.

“What if, instead of getting these emails at work, I could see the offer on my phone when I drove by or walked into a participating retailer? That could make marketing more interesting,” Roth said. “I think, in the future, we’ll all have the option of creating our own profiles, accessible to designated retailers. Based on analytics, retailers will push out special offers to you, and continue to refine these profiles based on your response. It’s one-on-one, totally customized, mobile marketing. “

Not only can the consumer get product information, and even compare prices on a smartphone, but he or she will soon be able to use the phone to pay for that product, even if it’s purchased in store. Near-field communications, or NFC, allows connections between devices in close range to facilitate both person-to-person and traditional retail payments. In a retail setting, a digital reader in store scans a barcode displayed on the customer’s smartphone screen. That barcode is linked to a credit card, bank account or other payment vehicle.

Will people really trust the smartphone as a payment option? All indications say “yes.” A well-known, U.S.-based coffeehouse started offering a mobile payment app as a more convenient way to make purchases than its ever-popular reloadable card. In just one year, this retailer logged 26 million purchase transactions via user smartphones. No one can say if it was the novelty of the payment option or the demographic of this company’s customer base that drove such a huge response. But, it does indicate that smartphone users are ready for and open to change.

Anticipating What’s to Come

While it’s true that companies should get serious about their mobile strategies today, going mobile for mobile’s sake is not the answer.

“Every company has to look at what makes the most sense for them; to identify areas where mobile apps can bring the most value, “ McGrath said. “Then, they have to make sure have the IT environment to support the initiatives they’ve identified.”

In the future, our experts agree: expect more rapid change. Significant advancements in mobile device processing power, bandwidth connectivity and continued mobile adoption are all on the horizon.

“Seamless broadband connectivity at speeds nearing half a gigabit per second, when coupled with quad-core processors running at two GHz and above could be quite transformational, enabling all of us to hold super computing capability in the palm of our hands,” Ramaswamy said. “This will enable widespread use of voice-enabled applications that flawlessly understand natural language commands, and enable artificial intelligence to benefit everyone in ways we never imagined before.”

Although no one can predict the future, one thing is for certain: the static world is ancient history. The era of mobility is upon us and will continue to change the way we work, the way we live and the way we interact with the world around us.

It’s the modern day wheel that’s going places – and taking all of us along for the ride.

Definition: “Cloud computing provides on-demand network access to a shared pool of configurable computing resources that users can rapidly provision and release with minimum client or provider interaction.”

“I think there will be an explosion” in the near term, predicts Steven Morris, senior business architect, business architecture + transformation for Wipro. Mike Capone, CIO of ADP, says “we are at an inflection point.” He says “even the hold outs are pushing things into the cloud because the economics make so much sense.”

By 2016 Abhay Chitness, CTO of L&T Infotech predicts “almost all enterprises will want to put their core applications in the cloud.”

When will the tipping point happen? Chitness predicts “when cloud-based offers priced at a fraction of the cost threaten established players like SAP and Oracle.”

Why now?

• Speed. This is the primary driver, according to Koushik. “Clients ask us, ‘How can I bring products to market faster? How can I develop applications to improve the customer’s or citizen’s experience faster?’” he reports.
• Consumer pressure. Morris of Wipro points out people used to smart phones and iPads believe that kind of mobility is preferable. “Business users are starting to ask why can’t I get my expenses on my iPhone? Why do I have to be tethered to a corporate computer?” he reports.
• Cost. Always a factor in outsourcing

Who will benefit?

In the short term, Chitnis says small-to-medium businesses will benefit from using software as a service (SaaS) and business processes as a service (BPaaS) more than large enterprises. That’s because large businesses typically don’t have standardized business processes, preferring to customize their apps. Companies “must standardize before they can leverage the cloud,” he says. Customizing a SaaS application is costly and can create “another set of monsters.”

Instead, large enterprises will turn to private clouds “to optimize their internal information.” Chitness predicts buyers will want a seamless experience including:

• A single sign on
• Secure data
• Consolidated billing
• The ability to review SLAs across various solutions
• Single help desk
• Documentation management
• An integrated platform for data

What will move to the cloud?

Trowbridge of Alsbridge says the early adapters moved easy processes like email and contact management to the cloud. Koushik, who is responsible for cloud, mobile and modernization services at HP, says work force tracking is another good process to test the waters. “You can move these processes to the cloud quickly,” he says.

Trowbridge notes in the near term the recommended methodology is to complete a series of pilots using specific point-to-point solutions. “Then work your way from there,” he suggests. Shantanu Ghosh, senior vice president, Genpact, agrees that at the outset “there will be a steep adoption in point solutions.” He also says enterprises will carve out specific parts of a business process before they send the entire process to the cloud.

The Alsbridge executive adds a good way to learn how to work in the cloud is to start with a new line of business. Ghosh of Genpact says starting something from scratch is the easiest way to implement cloud solutions; “trying to change a legacy model is much harder,” he observes.

Morris of Wipro predicts “we will see more of what’s inside the organization move outside.” He says companies have been talking about it since there has been a cloud but he predicts “a large scale migration” in the near term.

For example, Morris predicts integrated business planning will be one function slated to move to the cloud in the next 24 months. Sales directors want integrated information from both sales and production when they ask, “How are we doing this quarter?” He says this is difficult to do because the company has to be able to draw the data from divergent sources. Koushik of HP adds that companies will want to “loosely couple their applications in the cloud.”

Capone of ADP agrees that “companies will run both core and mission-critical applications completely in the cloud” in the near term.

Chitness of L&T Infotech says buyers will use SaaS solutions in isolation in the near term. Platforms will mature in the longer term, he adds.

Koushik of HP says many companies “are fascinated with mobility.” “They want their applications to work any time anywhere on mobile devices. This requires a seamless integration with cloud-based services,” he continues.

What may never go to the cloud

The Wipro executive believes there are some functions that will never move to the cloud: Things that are super niche. Nuclear waste management is one example. “I can’t imagine anyone wanting an app for that on their iPhone,” he says.

Chris Pattacini, director of Alsbridge’s ProBenchmark, estimates today up to 15 percent of any enterprise’s applications are non-standard, which makes them not cloud-ready. “Not every application can be delivered through a cloud solution. That means IaaS can only cover a portion of the buyer’s needs.” He says applications that follow a standard industry stack (such as Windows) are the best cloud candidates.

Pattacini says industries with “industrial-strength regulations” often have issues with security and back-end integration requirements that cloud solutions just can’t address currently. However, he predicts that over time cloud offerings will mature and “provide the security and the other services these customers need.”

Issues

1. Security. These include data encryption, isolation and authentication plus the worry of malicious attacks. “We have to tackle these issues and develop confidence in the buyer’s mind,” says Chitness of L&T Infotech.

Application developers can do this by now “consciously thinking about security.” Before the cloud, nothing left the walls of the enterprise. Now developers “have to architect security into their application,” says Koishik of HP. Since this is now happening, he doesn’t think security “will be an inhibitor to cloud growth” going forward.

However, Chitness says part of the security issue is pure perception. “Is this data I really need to worry about?” he asks. He proposes corporations classify their data and only worry about info that needs to be highly secure.

2. The changing role of the IT organization. Koushik of HP says departments can go to an application service provider directly and bypass the IT department. “The IT people are scratching their heads and wondering what their new role is. This is an evolving discussion,” he says. He predicts these pressures will cause “the role of the IT department to change” in the next two years.

One new skill they will have to hire is an integrator. And Koushik thinks the CIO of the future “will be more of an IT broker than a builder of IT services.”

3. Interoperability. Capone of ADP says “this is a big issue.” He notes companies want cross-platform reporting. Koushik of HP adds that companies want to get away from an IT environment built of components. “Today the environment has to be a lot more nimble and much easier to use,” he posits.

4. Risk management. New questions arise as BPaaS becomes more commonplace. Koushik of HP says enterprises have to look at business continuity and risk management differently. And “what happens when something goes wrong?” he wonders.

5. The need to archive. Pattacini of ProBenchmark says cloud providers will have to archive data that users can then audit or search for legal recovery.

6. Change management. Chitness adds enterprises have to make business processes “ready for the cloud.” This may mean changing the way they do business. “Adopting cloud technology does involve change management,” he points out. And without good change management policies, moving to the cloud will be like any other outsourcing: it may have as many failures as successes, predicts the L&T Infotech exec.

The view three to five years out

Koushik of HP believes “the true power of the cloud” will happen in this time frame because then providers will be able to help their buyers “integrate across the enterprise.”

He believes the cloud computing phenomenon “will reach its full potential when we think about it producing business outcomes.” Outsourcing buyers will ask different questions. Instead of trying to find Java programmers for $55 an hour, they will ask, “What’s it worth to enter a market three months ahead of our competitors?”

Both buyers and providers need this longer term to determine the correct unit of consumption so service providers can charge buyers appropriately. The HP executive uses loan processing as a service as an example. Is the unit of consumption the number of loans written or the number of calls answered?

An opportunity for outsourcing buyers

Ghosh of Genpact says buyers for the first time have the opportunity to leverage a solution that combines:

• Analytics
• Cutting edge technology
• The ability to improve process performance

“Cloud is a game-changer for buyers,” he says. Cloud especially changes their investment paradigm, he adds.

An opportunity for service providers

Morris of Wipro adds that business user pressure will create new opportunities for outsourcing providers. He says corporate IT departments are becoming swamped with requests for such applications. Whatever they write, it will have to work on iPhones, Android phones and Blackberries. “The easy answer is for them to go to a provider who has done this before,” he believes. This becomes easier yet if the service provider is already running the company’s back-end systems.

The only thing that we know for sure “is this space is changing rapidly,” says Capone of ADP. “There are no easy answers,” concludes Ghosh. “But we will see a lot of progress.”

Why now? N M Sarma, head, knowledge services, Tata Consultancy Services (TCS) says the global economic environment is changing the way corporations conduct business. Today enterprises:

• Have higher expectations of faster returns on investments made in the short and long term
• Face intense competition, shorter time-to-market and demanding customers; all drive up the cost of customer acquisition and retention
• Must comply with increasingly stringent regulatory requirements
• Need to adapt to changes in the demographic mix with the emergence of the millennials as a consumer group and Web 2.0 and social media as channels

“In this volatile market, enterprises demand real-time responses, not just causal analysis,” Sarma explains.

Corporations have had access to data for as long as there has been data. Until now, “the analytics business has been traditional data warehousing and business intelligence-based reporting,” explains Naresh Nagarajan, senior vice president and head of the Big Data Initiative at HCL Technologies. “Actions and insights were based on historical evidence. Forecasting depended on structured data in the business domain.”

However, today, “the volume of data is exploding. And it is available in so many forms and in so many places,” points out Rahul Kanodia, CEO and vice chairman, Datamatics.

He says the big challenge is so much of the data is unstructured—tweets instead of numbers historically found in a database. IDC estimates the amount of Big Data stored electronically will reach 25 trillion gigabytes by 2020.

Nagarajan of HCL points out “the explosion of social Webs and their real-time data feeds have changed the game. Corporations need to look at Big Data analytics with a completely different lens.”

“Extracting meaningful insights has become a challenge,” continues Kanodia of Datamatics. “This has given birth to a need breed of solutions.”

Hence the new popularity of analytics. Stephen Morris, senior business architect, business architecture + transformation UK for Wipro, says companies recognize they have to leverage the data flow to build competitive strategies. But with Big Data becoming so enormous, many enterprises do not possess the requisite tools to make the best use of the knowledge buried inside. Analytics is “a fast-emerging solution to this challenge. But it’s not just about unraveling historical trends. It provides a compelling tool to predict,” he explains.

Analytic trends

Sarma of TCS says business analytics “enables fact-based, insight-driven decision making to help companies manage their strategic, operating and financial performance and create shareholder value.” Morris of Wipro defines this need breed of analytics as “the tool that shows the health of an organization and charts where it needs to go forward.” He says analytics helps companies “stay focused on the current task, look for future opportunities and deal with potential challenges in their current processes.”

Analytics also promotes new thought processes, he continues. “They create new brain waves so organizations can look at things differently,” explains the Wipro executive.

Here are 11 trends impacting analytics, Big Data and business intelligence.

1. There is a shift from B2B to B2C.

Nagarajan of HCL calls this “the age of consumer centricity.” He cites “tectonic shifts in the business landscape across most business, but especially financial services, healthcare, retail and utilities. For example, retail banking is transforming due to the mobility explosion. Why go to a bank branch when you can deposit a check using your phone? “Analytics enabled on a mobile phone in real time will determine which bank acquires the small attention span of the rapidly-growing Gen Y customer. This is on-the-fly, real time analytics for prescriptive business acquisition,” he says.

2. Analytics is becoming a competitive differentiator

Analytics and business intelligence have become “competitive differentiators,” says Kulshreshtha of Genpact, because today companies operate in an economy “where growth is harder to get.” For example, pharmaceutical companies with billion-dollar drugs are losing their patents as they expire. So they have to cut their sales and marketing expenses significantly while continuing to support growth. “Essentially they need to figure out how to market much more cleverly,” Kulshreshtha says.

At the same time, consumer behavior in the U.S. is changing. For example, the savings rate reached a high of 6.9 percent according to the Commerce Department’s Bureau of Economic Analysis. “The consumer has realized times are volatile and it’s better to save. Today companies have to understand the new dynamics, predict consumer behavior of the future and get ready to use those to drive growth,” says Kulshreshtha.

The Genpact executive says companies today can no longer run large numbers of test marketing campaigns “to get the right results. Today they have to make more conscious choices, which is why they need to have higher business intelligence when making decisions.”

3. Corporations want predictive and prescriptive modeling

In the past, companies used analytics as a decision-support system based on historical data, says Abhay Chitnis, CTO, L&T Infotech. Today they want “actionable analytics,” data that points out trends “that will tell them this can happen if you don’t do that.” For example, companies are using analytics for resource planning and calculating actions if there are disruptions or delays.

Predictive and prescriptive modeling helps corporations get answers to the right questions, according to Don Weinstein, senior vice president, product management for ADP, Inc. “Today the trend is to use analytics to improve HR practices,” he explains. Before analytics could tell the HR department how many open positions it had. But does that help the company win the war for the best talent? “Today we can ask, ‘How do we hire the right people and where do we find them?’” he says.

In the consumer segment, Kanodia of Datamatics says the new tools and automation service providers can help their outsourcing buyers “give birth to micro strategies that address different customer segment down to single consumers.” He says ferreting out and taking advantage of micro trends are crucial in today’s uber-competitive world.

4. Analytics makes processes more strategic to the business

Asking the right questions makes HR more strategic for business results, Weinstein of ADP adds. “Analytics makes HR more strategic. But the job is definitely tougher, because now corporate leaders are holding HR accountable for business results,” he notes. According to Kanodia, “Analytics ensures that companies identify and remove net asset value from the processes to optimize the business information flow.”

5. Analytics can combine disparate data streams to improve business results

Nagarajan says HCL is currently working on real world evidence solutions – analyzing data from insurance companies as well as clinical data from hospitals “to tailor consumer health plans for specific population sets.” Another example: pharmaceutical companies are combining data from clinical trials, insurance claims from healthcare payors and social intelligence “to predict drug effectiveness and pricing.” He adds, “We ignored disparate data before.”

6. Enterprises want data available at all times in real time

Chitnis of L&T Infotech says data has to be constantly available if it is to be able to impact business processes. He predicts users will be able to interface with this data on multiple devices. He calls this “data churning on the fly.” He says sectors like retail will value geospatial business intelligence, because they can see data based on maps.

7. Enterprises want consolidated data

Weinstein of ADP says data historically was siloed and self-contained, coming from one process. That, however, is no longer helpful. Instead, companies need their outsourcers to amalgamate the data from disparate sources to get a full view. For example, if a company wants to evaluate the effectiveness of its hiring processes or its human capital, it needs to combine personal performance data with business data. “The biggest change we see is architecting analysis around business performance rather than process performance,” he says.

8. The shortage of mathematicians and statisticians may become a problem for both service providers and buyers

The Genpact executive foresees a shortage of mathematicians who the service providers need “to make sense of this enormous amount of data.” Weinstein of ADP says enterprises will “need to rethink the skills they have on their teams.” As HR, for example, becomes more metric-driven, the HR department will need statisticians and data modelers “who can dissect trends in large pools of data.”

Sarma of TCS adds these statisticians and mathematicians also need to be subject matter experts and have “a thorough understanding of the industry and its opportunities and challenges.” He says service providers need to hire talent with basic statistics skills and then invest in building deep industry knowledge in specific industries.

9. Top talent will be happier campers with the analytics now available

This is a win for the corporation. “HR people didn’t get into HR to process transactions. Their mission: to build a high performance team; analytics now enables that goal,” the ADP executive explains.

10. Service providers will bring more people onshore to do the analytics work

Kulshreshtha of Genpact predicts offshore providers will do more work onshore in the analytics arena. “Genpact plans to have over 500 analytics resources working in the U.S. in the next couple of years,” he reports.

11. The growing importance of analytics presents a huge opportunity for outsourcers who understand it

Weinstein sums up the situation: “The growing importance of analytics is a huge positive for the outsourcing market. With so much more data available, clients need to devote even more time to understanding what’s happening in their businesses while offloading as much of the day-to-day processing as possible. Now the outsourcing value proposition of focusing on what matters is even more strategic. The BPO service providers also have more opportunity because clients want us to help them understand the data and develop the strategies they need to drive business results,” says the ADP executive.

Conversely, boutique and single-process providers may find the future “challenging,” says Weinstein. He says someone has to integrate the data if a buyer has selected a host of point solutions. “People outsource because they want the integration,” he says. The only way to get a true picture of the human capital at a company is to have a full talent acquisition suite, a time and labor suite, and workforce administration and benefits package all tied together.

Concludes Nagarajan of HCL, “Those service providers that can leverage Big Data analytics to focus on business pain points will move up the value chain faster.”

Let’s take a look at the trends.

The Decline of the Mega-Deal; The Rise of Fragmentation

In recent years, ITO was a “partnership,” characterized by long-term, mega-deals with arduous sales cycles and complex pricing structures. Smaller companies rarely had the breadth to compete.  Today, all of that is changing.

“We see ITO morphing into something that’s more fragmented, “ explained Ben Trowbridge, founder and CEO of Alsbridge, Inc. and author of Cloud Sourcing the Corporation. “Instead of the mega-deal, single-provider contracts, clients are starting to break up deals based on competencies.  Two, three or more providers will become the norm.”

According to Trowbridge, today’s outsourcing client is now well-equipped to manage the complexities of governance in a multi-sourced environment.

“You have to remember that clients are maturing in their use of outsourcing, so they’re starting to govern the outcome instead of overseeing every tactical step,”  Trowbridge explains. “This approach makes managing multiple ITO providers far more feasible.”

This new breed of client is engaging the advisor community differently as well.

“Buyers are more informed, they’ve gone through the process – and service standardization has given them price transparency they didn’t have before,” explained Chris Pattacini, director of benchmarking for ProBenchmark, Alsbridge’s benchmarking division.  “Rather than coming to us to identify what and how to outsource, clients are engaging us to benchmark existing deals to make sure they’re not only getting a good price but are maximizing the value of that relationship.”

Service-level agreements (SLAs) are no longer enough to secure client satisfaction.

“We’re seeing a lot of ‘value leakage’ – clients who are seeing red when they should be seeing green. Their outsourcing partners are meeting the SLAs, but the clients just aren’t happy for a variety of reasons,” Pattacini said. “Clients ask us to do a ‘health check’ to identify what’s really causing the dissatisfaction.”

An Expanded Provider Landscape

At the same time the ITO market is transforming, new competitors are emerging. India, which historically competed in the space with applications, is now entering into the ITO market with a noticeable price advantage.

“Years ago, most U.S. ITO providers started out as a body shop – order takers – then developed a solution around service delivery,” Trowbridge said. “The same transition is happening with Indian providers. They’re teaming with organizations that have rack space and creating a solution that capitalizes on the fundamental advantage of the Indian market – an extremely low cost of labor.”

Other smaller, more specialized outsourcing providers are appearing worldwide. At the same time, many established providers are re-vamping their delivery models to compete, including going to market with new, “Cloud-like” service offerings.

“On the server side, we’re going to see traditional data center services look more like Cloud solutions, so these providers can protect market share and provide a viable alternative for applications that don’t really ‘fit’ within the Cloud model,” Pattacini explained.

For example, a traditional environment may have 100 servers, 30 operating systems and five or six platforms, making it difficult to manage cost effectively. A Cloud-like, more standardized solution enables clients to reduce costs, without following a pure Cloud model.

“In Cloud, the client goes to the Internet, buys server capacity with a credit card, and acquires the needed capacity. In Cloud-like solutions, there’s no self-provisioning, but the client has the cost benefit of solution standardization,” Pattacini said. “It’s like renting a car, leasing a car or buying a car. Cloud is renting, Cloud-like is leasing and the traditional approach is like buying. The truth is, not every application needs the flexibility provided by Cloud.  That’s where Cloud-like delivery can be a viable, lower-cost alternative.”

So, what does all of this mean to traditional, legacy providers?

“The lower cost options will undoubtedly create some turmoil in the market, and we anticipate legacy providers responding in a couple of very significant ways,” Trowbridge said. “Traditional ITO providers will start offering more granular solutions – more of an ‘a la carte’ menu of sorts — as opposed to one, big mega-solution.  They’ll start to match the market’s move toward specialization, providing a broader range of very specific, very focused services.”

The real game-changer could be when providers, like Amazon, begin making enterprise sales calls.

“Today, if you want to procure ITO with Amazon.com, you log in, view a video and purchase what you need,” Trowbridge said. “But, consider what would happen if Amazon committed to deploying an enterprise sales team. That alone has the potential to turn traditional ITO upside-down.”

A New World Order

Although opinions vary on where the market will go or what will happen next, one thing is certain: the world of ITO as we know it today will never be the same. Gone are the days of ‘an IT partner for life;’ in are the days of multiple, smaller, shorter contracts with a variety of specialized providers. India-based outsourcers are expanding their service portfolios beyond applications and programming to provide more traditional ITO services at significantly reduced rates. A more mature client base is taking a new approach to governance, managing by outcome and benchmarking to ensure they get the greatest value from their combined service provider partners.

In short, the times they are a-changing – and the transformation is starting right now.

The outsourcing market is experiencing a radical change from the first generation lift-and-shift paradigm to today’s business process solution model, according to Richard Jeffery, managing director, Active Operations Management International (AOMi). Adds Rahul Kanodia, CEO and vice chairman of Datamatics, “Today it’s no longer just about cost. Buyers want you to produce value from more complex transactions. In fact, BPOs need to scale up to the next level, which is knowledge process outsourcing and business process management, for demonstrating value adds to their customers.”

Here are the nine biggest trends that will affect the BPO world in the next 24 months.

1. The move away from headcount-based contracts

Jeffery says BPO buyers now no longer just want to move a chunk of their back offices. “Buyers are no longer happy with service based on headcount,” he says. Instead, they desire “a more complex platform and technology change.” He says the move away from scope has made the BPO proposition “more sophisticated and multi-layered.”

Kanodia agrees. “Technology and platforms are driving the second generation of BPO,” he observes. This makes taking over a process from end-to-end possible. “Buyers no longer want us to just take on a piece of work,” he continues.

Adds V K Raman, Head, domain services, BPO Services, TCS, the current  pressure for effective business operations means buyers “are increasingly looking at providers to not just save on the operational costs, but also to drive business excellence through transformation.”

Shantanu Ghosh, senior vice president and global head for practice solutions and transition for Genpact, adds that BPO 2.0 “will require a higher level of change management because it’s more intrusive.” He admits there are no easy answers when the change “requires a new way of thinking of how to run your business.” Efficacious change management is required because “the pain of change is only worth it if the change has a material impact on the business,” he explains.

2. Buyers want more transparency inside the BPO process

The AOMi executive says today buyers “are more sophisticated in what BPO should look like.” In the first generational model, buyers stipulated head counts and wrote SLAs. “That black box contracting model is increasingly dying,” observes Jeffery. Buyers no longer “take it on trust that their BPO is able to deliver the process. Clients themselves introduced industry standards for operations management which they expect and require their service providers to use,” he says.

Why? Because the buyer is still shouldering the productivity risk under a headcount contract. “Today buyers require operational transparency. They want to know how the provider is matching the headcount to the workload. With visibility the responsibility for productivity transfers from the customer to the service provider,” he reports.

Ten years ago the appeal of labor arbitrage meant “no one cared about seeing inside the operation,” continues Jeffery of AOMi. Today, however, it’s central to a strategic customer-service provider relationship. “This represents a 180-degree change for many Indian BPOs.”

Service providers who fail to adapt will lose business. Jeffery reports some of AOMi’s buyers are bringing the work back home or moving it away from India and Philippines. “They want a provider who either has an outcome-based pricing model or one that can offer a solution offering visibility over capacity and costs under a headcount model,” he explains.

3. Productivity matters

“There’s a lot of pressure on productivity. And you can also improve your costs by improving productivity through process automation,” Kanodia reports.

Jeffery says in the first generation model, Indian BPOs could just add an extra person to  get the job done. No more. “Today the productivity of the original team matters,” he says. “You don’t want to add additional people because now it affects your margins.”

He adds that for the first time BPO buyers are asking their service providers “about the how – they assure productivity. Historically, it never would have occurred to them that this was a useful thing to ask.” For example, buyers are now asking for details about team leader and management qualifications in operations management and capacity planning.

Outsourcing buyers locked into long-term contracts with a supplier are requiring a retrofit to achieve this standardization, Jeffery reports. Many Australian banks in particular “are requiring their service providers to standardize their processes for operational management control which aligns with the retained onshore teams.”

Ten years ago there were no standards for operational management practice, recalls Jeffery. Today, there are established international standards “which give clients much greater leverage when specifying and managing on-going performance,” the AOMi executive explains.

4. The rise of the BPO specialist

Today companies don’t want to hire an outsourcer that does everything. Instead, they prefer a BPO specialist, observes Ben Trowbridge, CEO of Alsbridge. The rise of knowledge process outsourcers is a good example.

Trowbridge adds this trend toward specialization does not auger well for second-tier service providers; he predicts they will either be acquired or pushed out because of these market forces. BPO buyers need to monitor this situation closely because they will have decisions to make if someone else acquires their service provider, he warns.

The Alsbridge CEO adds BPO buyers need to be sure the service providers they hire are indeed specialists in the process they claim to be. “Everybody says they are specialists but that’s just not the case,” he warns.

Ghosh notes the time has come “to separate the men from the boys. Service providers have to have a deep domain knowledge of their customers’ business at both the horizontal and process level.” He warns service providers: “You cannot  be everything to everybody. Pick your industries and understand them well.”

5. Offshore providers are doing more work onshore

“The conversation is shifting dramatically,” says Ghosh. He says Genpact’s buyers “are reengineering the business model” by doing some work nearshore, some work offshore and some work at home. Just sending work offshore to cut cost is now just a part of the conversation. Ghosh says today buyers want to streamline, integrate, standardize and optimize their business processes, which requires work to happen at home as well as abroad.

6. Regulatory pressure will continue to increase

Trowbridge predicts U.S. auditors will increase their scrutiny of BPO transactions. He suggests enterprises that outsource BPO processes will have to spend more time and money working with their BPO providers to accommodate the auditors.

Kholkar of TCS also sees evolving regulations on the horizon. “These will drive changes in the way many companies do business and necessitate their outsourcing partners to follow suit, he says. In addition, he believes certain industries like banking and insurance will experience increasingly stringent compliance. These will require additional investments to comply, he predicts.

As for service providers, Trowbridge warns them to “be careful what you agree to.”

Trowbridge says closer audits “will certainly not halt BPO adoption, but it will change the dynamics.”

7. Social media is a new biz op for BPO providers

“Social media is an increasingly relevant factor in the end-customer’s decision process,” says Raman of TCS. Increasingly, BPO providers are “capturing the data real-time, conducting analysis and providing critical insights to drive business agility. Managing the customer experience and responding to customer concerns have created a plethora of opportunities” for BPO service providers, he says.

8. Business Process as a Service (BPaaS) is catching on

Jeffery says buyers like the idea of paying as they go. But they also like buying the services behind it. “It’s like buying salesforce.com and the salespeople. Buyers like having the supplier put the different components together,” Jeffery explains.

Managing the customer experience and responding to customer concerns have created “a plethora of opportunities” for BPO service providers, he says. Kholkar of TCS says the “hype about cloud increased the acceptance and popularity of BPaaS models.” The fact that service providers are addressing data security and privacy law issues at a global level also helps.

9. Buyers are getting savvier

“That puts the service providers under pressure,” observes Kanodia of Datamatics.

The Datamatics executive says many of these trends are still nascent. “I predict the market dynamics will force more of them to happen…faster,” he says.

“We’ve seen retail sales increase by 5 percent to 6 percent, yet profits declined from 3.5 percent to 2 percent.  So, even though stores are selling more, they’re making less,” explained Tanmay Agarwal, global operating leader, Consumer Goods and Retail for Genpact.  “At the same time, consumer behavior has changed. Those who use to buy in bulk are opting for smaller quantities. Those who use to purchase items at full price now wait for promotions and discounts. To survive, retailers have to find new ways to reduce costs.”

But making up for shrinking margins is just one part of the challenge.  The rapid proliferation of mobility is redefining how retailers interact with their buyers. A static website with an e-catalog is no longer enough, nor is a standalone buying channel. In this always-on world, the lines between the physical store and digital world have blurred, and the speed of change is turning the traditional retail model upside-down.

No question, the retail industry is in the midst of a revolution, fueled by consumer expectations and changing market dynamics. However, few companies have the expertise or resources to make this transformation on their own.

As a result, retailers of all types are turning to outsourcing with an urgency we haven’t seen before – with engagements that range from supply chain optimization to BPO; from online enhancements to data analytics – and everything in between. We spoke to some industry experts to gain their insight into the emerging trends.

The Convergence of Physical and Digital Worlds

Not too long ago, a retailer’s online channel was little more than a digital version of a static print catalog. Consumers could browse at their leisure, compare price and eventually head out to the desired store to make their purchase. Online and in-store were two distinct experiences, with two different purposes.

With the proliferation of the smartphone, all of that has changed.

“In the last few years, we’ve seen a significant shift in the way consumers engage with retailers. Now, instead of doing a search online, then driving to a nearby store to make my purchase, I can be in the store, see something I like, Google the product or scan bar codes to find the best price or product information, then purchase that product from someone else online, using my mobile phone,” explained Sunil Oberoi, global head of marketing for Consumer Services, HCL Technologies.  “Today, physical store activity is no longer the source of power. Instead, multi-channel commerce, consumer-centric experiences are becoming the benchmarks of success.”

With today’s advanced mobile technology, the consumer doesn’t even have to be in a physical store to see and research an item to buy.

“Imagine a consumer walking down the street who notices a blue shirt on a person passing by. She points her mobile device at the garment to retrieve product information, including brand, pricing and availability. To purchase, she adds the shirt to a shopping cart, hosted on the cloud, and has it shipped to her home overnight,” said Bhanumurthy B M, senior vice president and chief business operations officer of Wipro. “The barriers of time and location have been eliminated.”

This new “see and search” approach to shopping has prompted retailers to take another look at their online catalogs, often going to experienced outsourcing providers for a cyber makeover.

“Retailers have to take existing product descriptions and make these more appealing to the consumer, while at the same time optimizing key words to generate more hits,” explained Rahul Kanodia, vice chairman and CEO of Datamatics Global Services.

According to Kanodia, retailers must apply technology to quickly decipher what the customer is looking for so the appropriate items are displayed. For example, a “timepiece” could be a watch, a wall clock or a travel alarm. Smart technology and more accurate descriptions could alleviate the confusion.

Retailers also must look beyond the actual word to understand the emotion of the consumer who keyed the word in.

“If a person searches for information on a particular cancer drug, he or she may be a patient who is nervous or afraid, or that person could be a student whose biggest worry is finishing a research paper on time,” Kanodia said. “By reading into the emotion behind the search, companies can better propose appropriate options. There’s a whole science behind that capability that we’re just beginning to explore.”

Extreme Target Marketing and Advanced Analytics

The question becomes: if consumers now have the power of price comparison at their fingertips, and online buying options are a click away, how can retailers differentiate themselves beyond the cost of goods?

Oberoi expects an increase in private labeling and more exclusive branded products at the store level, an approach that’s already proven successful for electronics and soft goods retailers alike. Some department and discount stores are partnering with high-end designers to create limited, “one time only” lines of clothing, accessories or home furnishings to keep consumer interest high.

More importantly, retailers have to find a way to truly engage the customer in this brave, new multi-channel world.

“As consumers, we all have distractions — a multitude of messages. The challenge is, how can a retailer get the consumer’s attention when he or she is already bombarded with data and information, both wanted and unwanted? We believe the answer is personalization — focusing messaging on what is important to each individual consumer,” explained Bhanumurthy. “For example, retailers can provide consumers with an online mechanism to identify what they like and customize subsequent messaging appropriately.  When that customer walks in a store, the phone screen is populated with information or specials around those identified items.”

Although on the surface it appears that this new multi-channel, mobile world makes it difficult for retailers to build relationships and get to know their customers, quite the opposite is true.

“In the traditional in-store model, retailers knew what consumers bought but not who bought it. Now, instead of studying what sold, retailers want to delve deeper into which customer bought which item,” Oberoi said. “Then, using predictive analytics, they can determine other items that customer has a propensity to buy. “

That means, instead of simply matching generic upsell items with specific purchases – socks with shoes, scarves with coats, fries with burgers – every offer is personalized.  By applying psychographics and micro-segmentation, based on documented consumer behavior, outsourcers can help retailers get personal with their customers, driving loyalty and revenue in a way that wasn’t possible in an unconnected world.

“Retailers can also use consolidated analytic data to merchandise their physical stores, devising planograms, store layouts and determining which SKUs should go where to get the greatest visibility and lift,” Agarwal said. “By integrating trends with chat content, social media and data from multiple stores and channels, we can create a Data Factory that transforms consumer behavior into the intelligence that retailers need for more effective strategic planning.”

Cost Control and Sustainability

Even with all of these initiatives in place, retailers won’t soon be able to return to the profit margins of old.  Still bruised from a lackluster world economy, the mid-market buyer continues to seek the most value for his or her hard-earned dollar, euro or yen.

Although they weren’t the first to the outsourcing dance, retailers are quickly recognizing the benefits of shared services to reduce costs in everything from finance and accounting to distribution to personnel management.

They’re also engaging outsourcers to save something just as valuable – natural resources.

“All retailers and manufacturers have to work with constrained resources, like electricity, gasoline and other forms of energy. They want to identify how to consume energy more efficiently,” Bhanumurthy said. “As online purchases increase, so do the transportation costs associated with moving those goods. Retailers are turning to outsourcing to identify how to optimize delivery to consumers and throughout their supply chains to minimize their costs and carbon footprints.”

An Expanding Trend

As the retail industry transforms with the help of its outsourcing partners, other industries are beginning to take notice, and are turning to outsourcing for similar strategies.

“Companies like banks and insurance brokers, where one-on-one consumer interaction is a major part of the sales cycle, could greatly benefit from the way retailers are engaging more personally with their customers,” Kanodia said.

Mass merchandising and the “deals-of-the-day” will fade as the new era of personalization emerges.

“Energy companies, health care organizations, even grocery stores will focus their efforts around enhancing the customer experience through personalization going forward,” Bhanumurthy said.  “The buying public will demand it.”

No matter what the consumer is shopping for, one thing is certain: gone are the days of the mindless ‘mall crawl’ in search of a new coat, TV or shoes. A retail revolution is upon us, bringing new ways to find, compare and purchase the items we need.  The convergence of the physical and digital worlds, and the application of advanced analytics are already transforming the way retailers engage with their customers – with more changes in store in the years to come.

“Businesses that leverage traditional outsourcing deals are looking to move off of inflexible contract and delivery structures,” explains Robert McNeill, Vice President for analyst firm Saugatuck Technology. “The pillars that built and supported legacy outsourcing are under severe pressure. Labor arbitrage, old technologies, and traditional business models limit effectiveness. Businesses are looking for more flexibility, innovation, and responsiveness from their outsourcers. BPaaS is providing that alternative.”

McNeill says BPasS is “broader than just a software play, and that’s important.” He says the BPaaS proposition may include Infrastructure as a Service (IaaS), Platform as a Service (PaaS), and SaaS as well as the traditional benefits of outsourcing such as process expertise and labor arbitrage. In addition, he predicts BPaaS offerings will provide a cost, sales, and delivery model to reach the medium-sized enterprise market. This is a change since “the traditional large service providers make their bread and butter in the Global 2000.”

Service providers are now providing the robust proprietary platforms and application modules they developed for their BPO practice to organizations for their in-house use as either fully integrated solutions or on a modular basis. Saugatuck Technology projects half of all BPO engagements by 2015 will involve BPaaS elements in the contracts.

The role of BPaaS in the future

Here is what the service providers are saying about BPaas:

• “The cloud will provide the platform for service providers of all shapes and sizes to re-energize traditional outsourcing services and also to launch new services. One key implication is that businesses will ask for cloud/BPaaS innovations within the renegotiation of traditional outsourcing contracts. Adoption as just the beginning.” Robert McNeill, Vice President for analyst firm Saugatuck Technology
• “In the medium term, we believe there is going to be significant traction. BPaaS will force people to standardize their processes. Infrastructure and software become more of a choice that allows buyers to leverage the right ecosystem. I think that is a huge shift that changes the landscape and is fundamental to how this will play out.” Shantanu Ghosh, Genpact Senior Vice President – Practices, Solutions, and Transitions
• “We think BPaaS will continue to take a larger share of the BPO market. This delivery model provides advantages that go beyond cost savings and hence will find widespread acceptability. For capital-starved firms especially, this model offers tangible business advantages. We are quite bullish about BPaaS adoption in the future.” Raj Agrawal, Global Head, Platform BPO Solutions for Tata Consultancy Services Limited (TCS)
• “Many of the concerns around BPaaS include long-term commitment, perceived risks, and the complexities around technology and BPO service integration. We continue to see increased adoption across many industries as more clients share their implementation experience and especially the return on investment.” Aniket Maindarkar, Associate Vice President, Infosys BPO
• “Technology is becoming more of a key component to the businesses. Now, everything is about process improvement. Part of the process improvement is running analytics around what is currently transpiring. We see service providers using software more as a proactive analytical tool curing things without getting people involved.” Mark Vengroff, CEO of Vengroff, Williams & Associates (VWA)

The drivers for BPaaS offerings

The BPO market, in general, and FAO market in particular, has matured. Buyers are increasingly demanding, seeking more flexible offerings tailored to meet their individual needs. The providers are finding it more difficult to find new enterprise clients with their traditional offerings. Beyond moving towards the largely untapped midmarket, providers are seeking new revenue streams.

Vengroff says improving performance is the primary driver for buyers. ”The technology may be lacking or the management team may not have the right set of processes in place. In some cases it is just a technology fix to be able to create a best-in-class performance and culture. So we realized we should start taking our toolsets and make them commercially available,” he says.

Agrawal of TCS explains “this model allows us to spread our investments across multiple customers. Customers share financial benefits by reducing operating costs up to 30 percent, thereby cutting capital expenditures. They do this using a pay-as-you-go pricing model.”

For Maindarkar, customer demand was a significant driver. “Companies are finding it difficult in this economy to secure the capital required for major platform implementations and other IT initiatives. It is clear clients are looking for ways to focus on their core capabilities. The benefits of a variable pricing model, combined with technology and business process excellence that reduce or eliminate large capital demands, are driving this interest. Clients are tremendously interested in remodeling their businesses in ways that are more flexible, on demand, and beneficial for the long-term.”

“All corporations now focus on faster payback, quick return on investments, and solutions where they do not have to think about infrastructure, software, and process services,” adds Ghosh.

BPaaS offerings

The offerings are, or will be, available as a fully integrated solution as well as individual components/services/modules. The providers not only can market their platforms, in whole or part, but also their services built around their expertise in using the platforms to their optimal potential to drive continuous improvement in business processes. They can couple these services with BPaaS to provide opportunities related to other areas of their clients’ business. BPaaS offers providers a product that can significantly benefit organizations migrating to new ERP systems.

“Infosys BPaaS is a fully integrated suite of services as well as stand-alone offerings, depending on a client’s needs,” Maindarkar states. “The market for BPaaS is rapidly maturing with clients looking at individual offerings initially, then building on that success with additional offerings. What clients expect is a unified service and IT strategy around BPaaS that allows them to leverage end-to-end services.”

“Response from customers, so far, has been encouraging,” Agrawal reports. “Our solutions are integrated as well as modular, and we are seeing interest on both ends of the spectrum.”

“Our view is that this is going to be a full portfolio of offerings,” Ghosh submits. “It will be a targeted point solution. It could be a full part of a process. In some cases, it could be end to end. We are having discussions with a large group and are finding them interested in understanding what this could do and where it could lead.”

“We have a lot of flexibility in how they want to use it,” Vengroff says. “We’re finding a tremendous amount of interest because there doesn’t seem to be a toolset offered into the marketplace that has this fully integrated solution.”

Providers offering flexibility in pricing models

There is a wide variety of pricing models. Providers are also going to market with a gain-sharing option. “I think the first few clients that move to the service will heavily dictate the initial function of specific BPaaS platforms,” McNeill suggests. “They will be taking somewhat of the early-mover risk. They will develop functions to reflect their requirements. The service will become useful and profitable when service providers hit a critical mass of clients that use the service.”

Vengroff says his firm has a variety of offerings, which include subscriptions and licenses. “We have also created performance-based risk/reward models,” he says. Since the firm is confident its “solutions will produce results,” it is including a percentage of the overall price as an incentive. He says most of the company’s buyers are looking at license per seat, but “we are getting involved with more of the enterprise engagements with the gain-sharing model,” he reports.

“The pricing model is really more pay per use,” Ghosh explains. “Some of it is monthly, and some of it is annual because of the way the customer wanted to stagger cash flows.”

“This utility model is attractive to clients for a variety of reasons, but they especially like that Infosys has a shared stake in their success,” Maubdarkar submits.

“Buyers will consume BPaaS through more flexible pay-per-use pricing models rather than large lump-sum outflows,” McNeill continues. “The entry point for businesses to consume BPaaS will lower as customers benefit from standardization (and cost savings) available from externally sourced infrastructure, platform, and software across many clients. Service providers, advisors, and IT/business executives are actively pursuing and introducing new cloud alternatives to yesteryear’s services deals.”

Market forces and new delivery changing BPO

Market forces and BPO maturation have converged to redefine the nature of the playing field. The shift is now less about broad-based, one-size-fits-all horizontal offerings. There is movement towards vertical expertise in conjunction with meeting the specific business objectives of the individual buyer at a lower price point. “Service providers are beginning to develop BPaaS offerings across numerous vertical markets,” McNeill adds. “But not all of these innovations will end up being profitable or successful.”

“Cloud computing inclusive of BPaaS provides an enormous opportunity for service providers,” McNeill continues. “There is a tremendous amount of internal strategy work to understand the impact of cloud IT. Service providers are focusing solution design and go-to-market strategies on new vertical BPaaS opportunities. The emergence of new vertical offerings will originate from traditional IT and business service providers that leverage a new, more efficient delivery platform for well-understood verticals in which they already sell and non-traditional cloud-based service providers with specific vertical and business IP.”

“The emergence of new cloud-based business services providers presents a new opportunity for traditional service providers to think outside the box,” McNeill concludes. “They may partner with businesses to offer new vertical-orientated business solutions and services. Traditional providers will bring expertise in service delivery, selling, and partnering to help take these new propositions to market. This trend may lead to increasing fragmentation in the service provider market with new non-traditional BPaaS providers driving significant market innovation.”

For BPO buyers, what had been a limited menu is rapidly becoming smorgasbord.

Extreme performance requires elasticity

Joanne Olsen, SVP, Oracle Cloud Services, believes the biggest change will be the “introduction of complete systems as opposed to a myriad of components that companies must integrate, yielding a complex, brittle architecture that just won’t stand up to the requirements of the ‘new normal.’” That “normal” necessitates that outsourcing solutions bring speed and flexibility.

Olsen comments that, in some ways, not much has changed from the way it was over the last five years – organizations still need to try to do more with less. However, the competitive field for solutions that address this need is changing due to new cloud solutions.

She says that during the next five years buyers will need to look for hardware and software solutions that have been engineered to work together in a manner that facilitates “extreme performance, reliability, and scalability, enabling companies to consolidate tens, hundreds, or even thousands of servers and applications onto a single, consistent, elastic cloud foundation.” In a nutshell, it’s much higher performance at a lower cost plus the assurance of less risk than if clients were to try to achieve these objectives on their own. (Also read Assessing the Coming Impact of Cloud Computing on Outsourced Solutions.)

New risks from mixed delivery models

Russ Daniels, Chief Technology Officer for HP Enterprise Services, says “the very structure of our industry is changing. The vision of ‘Everything as a Service’ is solidifying into new market offerings that will both satisfy and generate new demands for technology-enabled services.”

As buyers of outsourcing services opt for these new offerings, their expectations need to change. Daniels says that, more often than not, buyers’ business models, operational models, and even company cultures will change as they move to a highly automated, standardized, configure-to-order delivery model.

He predicts this will lead to an increase in organizations seeking consulting expertise to guide them through this paradigm shift. Daniels points out that CIOs already have contradictory advice and pressure. “While many sources say a move to the cloud and investments in new technologies are imperatives for success, there is still operational pressure to control costs by sticking with current, traditional systems.”

Daniels says the answer to navigating the paradigm shift is adopting a combination of choices based on the unique needs of the individual organization. Buyers should look at options that blend current systems and processes with emerging options. And they will need a “hybrid” IT environment – a mixture of in-house, shared, outsourced, cloud, Web-based, and mobile services. Each has different economics, and each will facilitate a different way of doing business that was previously cost prohibitive.

With this vast increase in service-delivery options, buyers will need discernment in the complexity of selecting the optimal source for each service. They also will need to know when to shift from one source to another in order to assure services meet their evolving business requirements.

Ritesh Idnani, COO, Infosys BPO, warns that outsourcing choices are inherently complex – and becoming more so. It’s no longer a simple matter of choosing between a strategic partner and a cost-effective provider; companies will need both characteristics in the same provider in order to stay innovative and enhance their business effectiveness.

“Given complexities and risks, companies will no longer be able to compare service providers on an ‘apples-to-apples’ basis,” says Idnani. “They will need to take a longer-term perspective and consider all the strategic sources of business value that a provider can deliver in helping them on their transformational journey.”

Abid Ali Neemuchwala, Global Head, TCS Business Process Services, says that the emergence of providers with multifunction expertise will lead to buyers “increasingly wanting to build a symbiotic relation with one or a limited group of providers that can meet their business requirements and also provide services on tap.”

Robert Pryor, Executive Vice President of Sales, Business Development and Marketing at Genpact, ties it all together: He advises that “Companies should change their mindset and start viewing their service providers much more strategically in terms of innovation and transformation. They will need to look for providers that will take a more proactive approach to driving step-fold improvements across an enterprise rather than incremental increases in individual areas.”

Stepping away from limited thinking around costs

Cognizant’s Chief Financial & Operating Officer, Gordon Coburn, says the single most important change in the next five years will be the focus on intellectual arbitrage. “Outsourcing’s value equation is moving to a new phase beyond simply improving existing outcomes or making them cheaper,” he states.

Gene Byrne, General Manager, F&A & SCM Solutions, North America, IBM, says the market is shifting to a focus on delivering higher, sustainable value on an end-to-end basis. Over the next five years the BPO industry will have to address a value proposition with limited labor arbitrage. Organizations that were early adopters of BPO are now asking: “How do we maximize the benefits of outsourcing beyond labor arbitrage?” and “How do we drive innovation in our outsourced business processes?”

The mindset for the two value equations is different. Coburn says companies that are in a labor-arbitrage frame of mind ask: “How can we achieve the same outcome for a lower cost?” In contrast, companies thinking about intellectual arbitrage ask: “For the same cost per transaction that we incur today, can we produce a dramatically different outcome?”

For intellectual arbitrage, business executives should step back and ask: “Why are we doing business this way? Can we do things very differently and achieve a very different experience for our customers if we have access to skills, expertise, and talent at price points that were not possible previously?” If so, Coburn explains, they can enable new services or capabilities that achieve a totally unexpected outcome.

Idnani at Infosys BPO cites multiple factors as the drivers for intellectual arbitrage – primarily an increasing focus on differentiation for new markets, new business mandates, as well as regulatory and environmental factors. Markets are constantly changing, as are companies’ demands. He says intellectual arbitrage is causing “an evolution in expectation alignment.”

Going forward, service providers must continuously evolve up the value chain, says Don Schulman, General Manager, Global F&A and SCM, IBM. “The value equation now must deliver cost optimization, stronger compliance and controls, improved business outcomes, better business agility, and end-to-end process harmonization that offers new ways to enable innovation.”

Schulman says it will matter whether an organization selects a service provider that can provide insight and visibility driven by integrated analytics. “This information will enable rapid, actionable business decision making while, at the same time, eliminate work activities and reduce costs.”

The globally connected economy makes intellectual arbitrage possible. “Companies can analyze and deconstruct each step of any process to determine the most appropriate location around the globe best suited to perform it at a given point in time,” says Coburn at Cognizant. “It’s a powerful paradigm shift and can introduce major process breakthroughs.”

The shifting provider landscape

Katrina Menzigian, Vice President of Research Relations at global services advisory firm Everest Group, believes buyers will need to be “on their toes” for the next couple of years as service providers reposition and redefine what they offer. She says buyers also need to take into account that “providers will be entering and exiting specific markets as market requirements increasingly demand broader sets of capabilities and as differentiation requires more distinctive strategies.”

Rajan Kohli, CMO at Wipro Technologies, says the shift happening in the provider landscape will present buyers with options from non-traditional players. He adds that the market will no longer “permit status quo. Buyers need to be of aware of new delivery models. It will also be essential to shift their mindset to value-based sourcing as opposed to cost-based sourcing decisions.

Pinstripe’s Executive Vice President, Angela Hills, agrees that the provider landscape will become even more competitive, which will cause an increase in partnerships, mergers, and acquisitions among providers. This will especially impact buyers with a global footprint that “want to work with a single provider instead of having relationships and points of contact with multiple providers.”

The opportunity

Byrne at IBM concludes new adopters of outsourcing will be able to “leapfrog their predecessors, capitalizing on the labor arbitrage opportunities that remain, while driving end-to-end value through innovation and optimization in the new services paradigm.”

The changes predicted for the industry will completely transform the way work gets done, but the changes won’t happen overnight. And there will be risks. (Read Eight Biggest Areas of Risk for Buyers and Assessing the Coming Impact of Cloud Computing and Buyers Face Decisions around New Opportunities and Risks in Outsourced IT Solutions.) Daniels at HP Enterprises advises buyer organizations to create a plan to leverage the new paradigm.

“Done right, it can be a transformational change without a complete rip and replace,” Daniels explains. “It’s the opportunity to start building things differently to get radically different results.”